The Good and Bad of Goldcorp Inc’s Earnings

Goldcorp (NYSE: GG) recently published its first quarter earnings report. What are the main takeaways from this report? Based on these results, is the company heading in the right direction?

The good: rise in production, financial stability, and future growthThe company's first quarter report showed Goldcorp was able to raise its gold production by over 10%, year over year. Despite the higher production, the company didn't meet its quarterly goals, as indicated in the table below.

Data from Goldcorp

But the company plans to increase its production in the coming months with projects such as Cerro Negro in Argentina, which Goldcorp estimates will start to produce in the fourth quarter of 2014. Moreover, the company reconfirmed it will reach its annual gold production guidance of around 3 million ounces of gold.

Despite the rise in production, the company's revenue dropped by nearly 7%, mainly due to lower prices of precious metals. This lower price environment, however, didn't adversely affect Goldcorp's financial stability; the company's debt-to-equity ratio remained low at 0.12. In comparison, Barrick Gold (NYSE: ABX) has a ratio of 0.97, which puts this company at higher financial risk. Further, Goldcorp's latest failed attempt to purchase Osisko Mining indicates the company is trying to augment its operations. Such steps in this direction could eventually pay off and increase Goldcorp's operations down the line.

Nonetheless, Goldcorp slightly reduced its 2014 capital expenditure to $2.4 billion -- roughly 14% lower than in 2013. Keep in mind, other leading gold producer also cut down their capital expenditure due to the weakness in the precious metals market -- for example Barrick Gold slashed its capex by half in 2014 compared to 2013. But since Goldcorp's debt isn't high and its operating cash flow remains positive, the company is capable of maintaining a high capex and seeking new businesses to expand its operations.

The bad: lower profit marginsDespite the rise in production, the company's profitability continues to suffer mainly due to the low precious metals prices. Further, its operating profit margin slipped from 32% in the first quarter of 2013 to 23% in the first quarter of 2014.

The negative impact of low metals prices was partly offset by the company's ability to substantially reduce its all-in sustaining costs: In the first quarter, the company cut its all-in sustaining costs by 25% compared to the same quarter in 2013 and by nearly 14% compared to its 2014 guidance.

Data from Yamana Gold, Barrick Gold, and Goldcorp

This improvement isn't unique to Goldcorp. Other leading gold producers also cut their all-in sustaining costs as presented above.

As you can see, Yamana Gold (NYSE: AUY) and Barrick Gold also recorded a much lower all-in sustaining cost in 2014 compared to 2013. As of the past quarter, all three companies have similar all-in sustaining costs. If these companies maintain their production costs low, this could keep offsetting the adverse effect the low prices of precious metals have on these companies' profit margin.

Final noteGoldcorp is heading in the right direction toward reaching higher production and cutting down its operating costs. The weakness in the precious metals market is reducing the company's profit margins. But as long as Goldcorp keeps improving and expanding its operations, this could offset some of the negative impact the low gold price environment has on the company's stock.

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